CAN SMR AUTHORITY MONITOR THE ADJUDICATION ORDER?, Goods and Services Tax - GST

[Sadanand Bulbule]

Dear experts

1] The adjudication process under Section 73 or 74 of the CGST Act is supposed to be concluded by not only the authorised Proper Officer but also by an independent authority. It means, such Proper Officer is legally not to be influenced by the higher authorities in any manner so that such adjudication order is passed in a free and fair manner.

2] However in some States, there are official instructions via Circular to monitor the adjudication process by the Revisional authority appointed under Section 108 of the CGST Act. And only after the "green signal" by such revisional authority, adjudication orders see the sunlight. In case there is " red signal", no orders would come out so easily. Surprisingly such monitoring system instead of boosting the legality of the adjudication process/revenue under Section 73 or 74, there is strong apprehension of generating force on the Proper Officers to saddle tax liability without caring for the legal consequences.

3] The vital question here is, can the revisional authority under Section 108 be authorised to officially monitor the adjudication process/orders/decisions and direct the Proper Officer to conclude the adjudication under Section 73 or 74 in a specific wishful manner?

4]. Can such administrative instructions over-rule the statutory provisions/judicial rulings?

5] What is the settled legal position on this situation?

I am of the considered opinion that, the revisional authority is not supposed to see the adjudication process, much less monitoring it.

Experts to throw light on this.

Posts / Replies

[Sadanand Bulbule]

Dear all

I wish to add here that:

‘Adjudication process’ cannot be a rubber stamping of the opinion already formed by a higher authority under Section 108, who monitors it. The Proper Officer who is supposed to write down his minimum reasons to pass adjudication process has to independently apply his own mind and not somebody's mind. It should not be a mechanical order to create unsustainable demand. It must be apparent that the Proper Officer penning the reasons has applied his mind to the material facts available on record and has, on that material facts, arrived at his judicious decision. Application of his mind to the facts must be discernible and not out of fear of administrative action.

The second question that arises here is, if the authority appointed under Section 108 officially monitors the adjudication process under Section 73/74, then later-on how can he take up such cases for revision under Section 108 on the ground that such order is erroneous and prejudicial to the interest of revenue, which is a product emerged on his "green signal? Or will not lead to freezing the object of Section 108 itself?

Experts to consider this implication while responding.

[KASTURI SETHI]

Sh Sadanand Bulbule Ji,

Sir, Please refer to the issue ID no. 116297 dated 18.5.20 raised by you. This issue was raised in VAT/CST Acts but now in GST Acts.

Para no. 1 Your observation is correct to the core.

Para No. 2 Your observation is correct to the core.

Query No. 3 NO. The statutory role of the Revisionary Authority commences after the passing Order-in-Original by the Adjudicating Authority and not prior to that. No power of monitoring is vested with the Revisionary Authority during Adjudication Proceedings. It is not the jurisdiction of the Revisionary Authority. If it is done directly or indirectly, it will be in violation of principles of natural justice and going beyond jurisdiction will result in setting aside such order by the Appellate Authorities.

Query No. 4 Not at all. However, practically I have also faced such a situation in one of my client's case and, ultimately, the Order-in-Original was set aside by the Appellate Authority on merits after a period of two years. My client got fair justice.

Query No. 5 Case laws pertaining to 'going beyond jurisdiction' can be traced out easily. However, specific case law of going beyond jurisdiction by way of 'monitoring' is not possible. The case laws pertaining to violation of principles of natural justice can also help you in getting fair justice.

[Sadanand Bulbule]

Dear Sir

Thank you so much for point wise clarification.

I wish to add that:

Adjudication process, being the combination of quasi-judicial system and logical conclusions, should not become victim of inter play of power(?) and taxpayers mute spectators of this drama.

I have come across hundreds of adjudication orders wherein despite the basic ingredients of Section 73/74 are absent, PO has fastened tax liability only on the “directions” of the JCCT who is also the authority under Section 108. What kind of quasi-judicial duty is this?

This is nothing but simply gross abuse of administrative powers. The source of authority for issuing Circular incorporating such lawless powers is mysterious. Taxpayers are just taken for granted pushing the quasi-judicial process in the corner of darkness.

CBIC is requested to look into this matter in the interest of sustainability of adjudication orders and the real revenue generating out of it. Otherwise gateways for litigation open.

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Sir, This is with reference to your outpourings at serial no.1 dated 01.10.2024.

'Monitoring' may be by way of internal verbal instructions but it is an uphill task to prove.

[Sadanand Bulbule]

Dear Sir

The instructions to monitor the adjudication process are official by way of Circular issued by the HOD.  This is the worry for the POs for scrapping their statutory independence. Consequently the honest taxpayers are suffering for no fault of them to face unimaginable tax demands. 

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Sir,

(i) Will you please mention circular no. ? 

(ii)  A circular has no statutory force.

(iii) It cannot override any Act, notification and rule A circular cannot be contrary to Section.------Hon'ble Supreme Court. 

[Sadanand Bulbule]

Dear Sh Sethi Sir ji,

 I go by your expressions to clear the dark clouds surrounding this issue:

Circular No. GST-03/2023-24 dated 13/06/2023 of the CCT, Karnataka.

My apprehension:

Scope of revision under Section 108 of the CGST Act, 2017

1] The Hon’ble Supreme Court in umpteen number of cases has highlighted the scope of similar revision under various finance statutes. Accordingly the revisional jurisdiction can be exercised where the assessment/adjudication is found to be erroneous and prejudicial to the interest of revenue by way of non-adherence with the provisions of law, the recorded finding is not supported by evidence, relevant evidence is omitted or judicial discretion is used arbitrarily or perversely. This provision is extremely restricted to the fulfilment of these essential ingredients and it is the basic cornerstone of exercising authority under revisional jurisdiction. Each case has to be decided individually and cannot be used on a cyclostyle standard.

 2] The revisional jurisdiction under Section 108 or 109 may begin only after the adjudication process is completed under Section 73 or 74 provided the elements of “erroneous & prejudicial to the interest of revenue” are substantially established on records. So the revisional authority must assess the accuracy, validity, or appropriateness of any adjudication decision or order. While doing so, the revisional authority cannot encroach on the facts and evidence of the case placed before the original authority under Section 73 or 74.

3] Legal position being so, how can a revisional authority under Section 108 of the CGST Act function as head of the “Monitoring Committee” to monitor the adjudication process and dictate the terms to the competent POs to pass the adjudication order in a particular manner? Can the PO being a subordinate refuse the directions of his immediate administrative head? Under such peculiar situation, who is real authority under Section 73 or 74? Is it the original PO or the revisional authority?  Can such orders be free from undue influence and impartial? It’s million dollar question.

 Experts to throw enough light on this topic.

[KASTURI SETHI]

Sh. Sadanand Bulbule Ji,

Sir, Para-wise my views are as under :-

Para No. 1 : The Hon’ble Supreme Court in umpteen number of cases has highlighted the scope of similar revision under various finance statutes. Accordingly the revisional jurisdiction can be exercised where the assessment/adjudication is found to be erroneous and prejudicial to the interest of revenue by way of non-adherence with the provisions of law, the recorded finding is not supported by evidence, relevant evidence is omitted or judicial discretion is used arbitrarily or perversely. This provision is extremely restricted to the fulfilment of these essential ingredients and it is the basic cornerstone of exercising authority under revisional jurisdiction. Each case has to be decided individually and cannot be used on a cyclostyle standard.

My view : Agreed in toto

Para No.2 : The revisional jurisdiction under Section 108 or 109 may begin only after the adjudication process is completed under Section 73/74 provided the elements of “erroneous & prejudicial to the interest of revenue” are substantially established on records. So the revisional authority must assess the accuracy, validity, or appropriateness of any adjudication decision or order. While doing so, the revisional authority cannot encroach on the facts and evidence of the case placed before the original authority under Section 73/74.

My view : Agreed in toto

Para No.3 : Legal position being so, how can a revisional authority under Section 108 of the CGST Act function as head of the “Monitoring Committee” to monitor the adjudication process and dictate the terms to the competent POs to pass the adjudication order in a particular manner?

Can the PO being a subordinate refuse the directions of his immediate administrative head ? Under such peculiar situation, who is real authority under Section 73/74.? Is it the original PO or the revisional authority? Can such orders be free from undue influence and impartial ? It’s million dollar question.

My views : These problems are likely to arise due to the issuance of the circular which appears to be not in letter and spirit of CGST Act / KSGST Act. So in the interest of principles of natural justice, a representation should be made to the jurisdictional Principal Chief Commissioner or the Chief Commissioner through Trade and Industry Association.

The Revisionary Authority is under administrative control of the Principal Chief Commissioner / Chief Commissioner. The subject circular must have been issued after getting approval either from the Principal Chief Commissioner or Chief Commissioner. It is my presumption.

Further, I visualize that the rationale behind the issuance of the circular may be for better administrative control, better supervision, expediting the disposal and hence better results in the interest of the revenue but this circular is at the cost of principles of natural justice, it being not in letter and spirit of GST laws. It is a trite law that a circular being devoid of statutory force cannot override the Act.

Please make all-out efforts in the interest of fair justice for the Trade and Industry. Hopefully, your sincere efforts will save so many assessees from unnecessary litigation

Thanks & regards.

Disclaimer: These are my personal views for education purpose only and not meant for any court proceedings.

[Sadanand Bulbule]

Dear all

I take this opportunity to draw the attention of all the stakeholders:

BENGAL IRON CORPORATION VERSUS COMMERCIAL TAX OFFICER - 1993 (4) TMI 277 - SUPREME COURT

"The understanding of the Government, whether in favour or against the assessee, is nothing more than its understanding and opinion. It is doubtful whether such clarifications and circulars bind the quasi-judicial functioning of the authorities under the Act. While acting in quasi-judicial capacity, they are bound by law and not by any administrative instructions, opinions, clarifications or circulars".

My take:

The whole idea is the authority under Section 108 being higher officer should not put spokes or obstruct under the guise of prior approval in exercising the power of adjudication under Section 73 or 74, being quasi-judicial. The POs are fully live and competent enough to determine the tax liability the way it meets the basic ingredients of fair adjudication. If at all such process suffers from any deficiency of law, the authority under Section 108 can take up such cases for revision but never before they are concluded. This is the distinguishing compartment between Section 73/74 and Section 108. They are exclusively independent like railway track but always go together to ensure safer revenue and justice as well. Otherwise it unsettles the well settled system of free and fair adjudication.

It is also gathered that this is one of the main reasons for flooding of appeal petitions under Section 107 and Writ Petitions too. This can be avoided if the wisdom of the top administrators is diverted to this segment.

If at all there is need of supplying additional blood in the pipeline of adjudication. it may be done by the officers other than those empowered under Section 108 and 109 which also meets the essence of PNJ.

It is high time to flip the existing system of putting spokes [supra] and ensure ease of business by way of avoiding needless litigation and restoring peace of mind to all.

[KASTURI SETHI]

Sh.Sadadanand Bulbule Ji,

                  Sir,   Your views are  full of substance. These are full of legal and logical force. You are making efforts in public interest. It is my suggestion that you  must write a letter to  the jurisdictional Principal Chief Commissioner or Chief Commissioner  for withdrawal of the above circular which is not legally correct. While writing a letter, please also lay emphasis  on the legal meaning of 'monitoring'.

                       

                           

[Sadanand Bulbule]

Dear all

A] Legal meaning of monitoring:

i] To ensure one is on course and on schedule in meeting objectives and performance targets, one supervises activities in progress.

ii] Continual checking, supervising, critically observing or determining the status in order to identify change from the performance level required or expected.

Iii] Observe and check the progress or quality of (something) over a period of time; keep under systematic review.

B] Coming back to the legality of the impugned circular, I take the help of the following ruling:

Custom, Excise & Service Tax Tribunal

M/s. Asian Clour Coated Ispat Ltd vs CCE, Delhi-III - 2014 (11) TMI 26 - CESTAT NEW DELHI (LB)

The following text is extracted from the above ruling on the similar situation created by the impugned circular mentioned at Sl No. 7.

In Orient Paper Mills v. Union of India reported 1968 (5) TMI 15 - SUPREME COURT their Lordships of the Hon'ble Supreme Court has laid down that quasi-judicial authorities should not allow their judgment to be influenced by administrative considerations or by the instructions or directions given by their superior. Therefore, instructions issued by the Board are not binding upon the adjudicating authority.

94. The impugned Circular was issued by the executive and sent to all Chief Commissioners of Central Excise, all Director General of Central Excise, all Commissioners of Central Excise (Appeals) and all Commissioners of Central Excise. Some of these bodies discharge quasi-judicial functions. It is the settled position of law that quasi-judicial functions cannot be controlled by executive actions by issuing circulars. It is totally impermissible. According to the spirit of Section 37B circulars or directions can be issued in order to achieve the object of uniformity and to avoid discrimination. Such circulars bind the officers only when they act in their administrative capacity. It must be clearly understood that the Boards circulars instructions or directions cannot in any manner interfere with quasi-judicial powers of the Assessing Officers. Officials exercising quasi-judicial powers must ignore any circular or direction interfering with their quasi-judicial functions.

95. Whenever any authority is conferred with the power to determine certain questions in judicial and / or quasi-judicial manner, the authority is required to exercise the power conferred upon him as per his own discretion. This is the essence of judicial and quasi-judicial function. The authority exercising such powers cannot be influenced by any directions, instructions or the Circulars that may be issued by any other agency. Consequently, the Circular issued by the respondents cannot be permitted to interfere with the discretion of the judicial and quasi-judicial authorities.

96. The power to impose tax is essentially a legislative function and according to our constitutional scheme it cannot be delegated. The Excise Duty which the legislature intends to impose must be imposed directly in accordance with law. By issuing the impugned circular the respondent cannot introduce revenue legislation indirectly. The impugned circular also deserves to be quashed on this ground also.

C] Analysis:

Considering the object of the circular [supra], it does not speak about the “administrative supervision” but dictates direct interference in the quasi-judicial functions of the POs empowered under Section 73/74. Consequently neither the POs are discharging their quasi-judicial functions nor are they permitted to discharge like that.

If one looks at the terms of the impugned circular, there is an element of concerning factor at the concluding segment and the POs empowered under Section 73/74 are at the mercy of passing orders only after complete “satisfaction” of such monitoring committee. Thus it is the direct live electric fence in quasi-judicial functions and not in consonance with the object of free and fair tax administration. Unless the undue pressure is defused, it is not easy to expect an impartial adjudication orders despite merits.

Let the concerned authorities focus on the impartial revenue and not creating irrecoverable arrears for ever. This is the only object of entire discussion and nothing else. Otherwise Section 128A of the CGST Act frequently takes birth.

[Alkesh Jani]

Shri Sadanand Bulbule Ji,

Respected Sir,

With regards to query raised my views are as under:-

As you have mentioned that certain states have issued circulars or instructions regarding the monitoring of the adjudication process, I have not encountered any such directive in my state, Gujarat. If such an order exists, it should be challenged as a non-speaking order, as it would not reflect the findings of the adjudicating authority but rather directives imposed by a higher officer. Should there be any verbal instructions, addressing them would be particularly difficult.

The fact remains that the adjudicating authority must issue orders with an open mind, independent of departmental influence while adjudicating cases.

Sir, I would also like to bring to your attention that before the appointment of ADC/JC as Appellate Authorities, the Commissioner (Appeals) acted as the Appellate Authority. In those instances, there was no room for external influence or instructions since the office of the Commissioner (Appeals) operated independently. However, with the recent appointment of ADC/JC as Appellate Authorities, it is possible that some verbal instructions are being issued, though given the volume of SCNs, it may not be feasible for this to occur in every case.

Sir, everyone is bound by the law, and any such instruction, if given in writing, would not be legally sustainable. In this regard, I would like to cite the Hon’ble High Court of Calcutta in the case of Simplex Infrastructure Ltd. vs Commissioner of Service Tax - 2016 (4) TMI 548 - CALCUTTA HIGH COURT, where it was observed:

"It is well settled that a quasi-judicial authority must act judiciously and not at the dictates of some other authority. It is quite evident that the Commissioner issued the impugned show-cause notice at the instance of CERA without any independent application of mind, and thereby abdicated his powers and duty, which is not permissible in law."

Thank you.

With regards,

[Sadanand Bulbule]

Dear Alkesh ji

Thank you so much for outpouring your meaningful thoughts on the subject under discussion. Your extensive support for impartial adjudication is highly solicited. Seeking more and more contributions in the interest of justice to all at no cost.

Let ease of business become a reality at least now.

Profound regards

[KASTURI SETHI]

Sh.Alkesh Jani Ji,

You have contributed for a cause. Your views will play a vital role in in mobilizing the public opinion for the welfare of all the stake holders.

Thank you very much.